Gupta Prosecutors Rest Insider-Trading Case in New York

Rajat Gupta, former Goldman Sachs Inc. director and former senior partner at McKinsey & Co., arrives at federal court for his trial on insider-trading charges in New York on May 23, 2012. Photographer: Louis Lanzano/Bloomberg

Gupta, who ran McKinsey & Co. from 1994 to 2003, is accused
of leaking secret tips to Raj Rajaratnam, co-founder of hedge-fund company Galleon Group LLC, about Goldman Sachs and Procter
& Gamble Co., where Gupta was also a director.

“Your honor, the government rests,” Assistant U.S.
Attorney Reed Brodsky told U.S. District Judge Jed Rakoff today
in Manhattan federal court. Gupta is charged with conspiracy and
securities fraud, which carries a maximum 20-year prison
sentence.

Lawyers for Gupta, who denies wrongdoing, will now mount a
defense that may center on whether others at New York-based
Goldman Sachs leaked information to Rajaratnam, according to
Gupta’s lawyer, Gary Naftalis. Naftalis will tell Rakoff today
whether Gupta will testify in his own defense. Rakoff said today
that the defense will probably conclude by June 12.

Tips in question involve earnings in the first quarter of
2007 and fourth quarter of 2008. Another involves a $5 billion
Berkshire Hathaway Inc. investment in Goldman Sachs on Sept. 23,
2008. Prosecutors also say Gupta told Rajaratnam that
Cincinnati-based P&G planned to sell its Folgers Coffee unit to
J.M. Smucker Co.

The trial began May 21.

Blankfein Testimony

Under cross-examination from Naftalis today, Blankfein
agreed that senior firm executives had briefed outside analysts
in July 2008 on the likelihood that Goldman Sachs would acquire
a bank. The defense brought out the testimony to counter a
prosecution claim that Gupta had illegally told Rajaratnam about
the company’s plans on this issue.

Naftalis also attacked an allegation that Gupta leaked tips
on Oct. 23, 2008, about Goldman Sachs’s unprecedented losses
after learning of them at a meeting that afternoon. Naftalis had
Blankfein testify that board members had probably been briefed
about losses as early as Oct. 13.

Naftalis confronted Blankfein with a news article based on
unnamed sources from the morning of Oct. 23 disclosing Goldman’s
plans, as-yet unannounced, to cut 10 percent of its staff.

‘We Regret’

Blankfein didn’t recall the news story or the voice mail he
distributed to the firm’s 32,500 employees after the report came
out. In court, Naftalis had Blankfein read part of the
transcript of the voice mail, including the sentence, “We
regret that many of you heard of this decision from news
accounts.”

Naftalis also showed Blankfein a newspaper story from July
2008 that included a photo of the CEO resting his head on his
left hand. When the picture was displayed to the court on an
overhead projector, Blankfein struck the same pose on the
witness stand.

The courtroom erupted in laughter as Naftalis smiled and
said, “Move your head down a little to the left.”

Blankfein’s testimony ran over parts of three days. Other
Goldman Sachs executives who testified for prosecutors included
director William George and former vice chairman of investment
banking Byron Trott, the architect of the $5 billion investment
by Warren Buffett’s Berkshire Hathaway.

Galleon Employees

The government also relied on testimony from a former
Galleon trader, Ananth Muniyappa, and an ex-Galleon portfolio
manager, Michael Cardillo.

Rajaratnam was convicted of insider trading last year and
is serving an 11-year prison sentence. Unlike Rajaratnam’s
trial, in which prosecutors played recordings of the defendant
in wiretapped phone calls, the Gupta case is built on
circumstantial evidence, including records of trades, mobile-phone call logs and business deals.

Earlier at the trial, Blankfein testified that he briefed
his board over the phone on the Buffett investment beginning at
3:15 p.m. Within a minute after the call with the directors
concluded at 3:53 p.m., Rajaratnam answered a call from a
McKinsey conference room being used by Gupta, according to phone
records and witness testimony.

Muniyappa said Rajaratnam got off a call and hurriedly told
him to buy Goldman Sachs shares. Galleon bought 267,000 shares.
Prosecutors played a wiretapped recording of a Rajaratnam phone
call from the next day.